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Dylan Matthews has an opus of wonkery on government accounting, that delightfully touches on some of the geekier issues like the connection between loan payments and what it means-to-be, a question perhaps more broadly understood as something like, "what is the nature of the immortal soul."

This bit, however, is asking the wrong question.

But here’s the thing. Even the most student critics of fair-value accounting admit that the costs it identifies are real social costs, that need to be taken into account in any cost-benefit analysis of a policy. As the CBPP authors write, “The concept of a risk aversion cost can and should play a part in the cost-benefit analysis that policymakers should undertake in deciding whether a government program constitutes wise public policy.” Kamin agrees, writing, “Policy tradeoffs should be made based on a cost-benefit analysis that fully incorporates social costs and benefits.”

Risk aversion is a poor lense. The real issue is state-contingent claims, not state-contingent utility. Most investors suffer from the problem that their investments are most likely to lose value precisely when the investors themselves are most likely to be in dire straits. If the stock market is collapsing, for example, then the chance of you becoming unemployed goes up. You can only get at your money out precisely when you don't need it.

From a purely blackboard point of view the US government has the opposite situation. Student loans for example, are most likely to experience high default rates precisely when the government is most likely to see its costs of borrowing collapse. To the extent that's the case, market risk for the US government is negative. This is why the bank bailouts for example, had the curious feature that the government shoves money at collapsing institutions and gets more money back. Or, why the Fed can buy mortgage bonds during a housing credit collapse and return record profits to the Treasury.

From the point-of-view of taxpayers the relation holds true as well. Taxes as a fraction of income tend to fall, not rise as the market collapses. This implies taxpayers are less burdened precisely at the time when student loans are more likely to default.

Now, so long as the government used its negative beta to full effect, it would make little sense to account for market risk. No human being would ever have to suffer from the government's exposure to market swings and so there is no risk to be averse to.

Unfortunately things are not so clean. When the market tanks, fear about government debt rises despite the fact that the carrying cost of the debt is falling. This can and has lead to austerity which does induce suffering. So there is a social cost created by the debt-austerity-market linkage. Its that social cost that you want.